Hospitals seek ways to absorb state cuts

Hospitals statewide, including Lawrence + Memorial in New London and The William W. Backus Hospital in Norwich, are engaged in "the very painful process" of figuring out how to make cuts in services and staffing as a result of the newly approved state budget, the Connecticut Hospital Association said Thursday.

"Some are planning to shrink or curtail programs and services. ... Others are instituting hiring and pay freezes and, unfortunately, layoffs," spokeswoman Michele Sharp said. The association, she said, is working with Gov. Dannel P. Malloy's administration to find ways to minimize the impact, which hospital officials say will be the result of a state tax on hospitals.

The tax, a complicated means of leveraging federal dollars, was offset in past years by state reimbursements that exceeded the amount paid under the tax. In the fiscal 2014-15 budget proposed by Malloy and adopted by the legislature, the reimbursement is reduced far below the level of the tax, hospital officials say. Hospitals statewide will be taxed a total of $134 million in the first year of the budget, and $268 million in the second, Sharp said.

Backus spokesman Shawn Mawhiney said the impact on the Norwich hospital's budget will be $22 million over the two years of the biennial state budget. He declined to comment further.

At L+M, William Stanley, vice president for development and community relations, also estimates the impact at $22 million over two years.

"We're looking at where we're going to have to cut," he said. "Everything is on the table. Statewide, this will mean job losses in the thousands, and the downsizing of vital programs and services."

The Malloy administration, however, has a far different interpretation of how the new budget will impact hospitals.

Gian-Carl Casa, undersecretary for legislative affairs at the Office of Policy and Management, said funds to hospitals are not being cut. They are in line to receive $1.7 billion in the new budget, an increase of 145 percent over the last decade.

"They are just not getting increases," he said.

Casa said hospital funding will be affected by the federal Affordable Care Act and sequestration, but these areas are not a function of the state budget.

"Some hospitals have unfortunately tried to blame the state for decisions they and their boards have made," he said. "But let's be clear - blaming others for what you decide is the easy way out. Decisions by hospitals about how to use their resources are theirs and theirs alone."

State Rep. Susan Johnson, D-Windham, co-chairwoman of the Public Health Committee, said hospitals did not make a convincing case about the harm Malloy's hospital funding proposal would cause, so the legislature basically approved the governor's plan.

"I'm not convinced it's as bad as they're saying," she said. "We certainly don't want any hospital employees to be laid off."

She added, however, that hospitals may see some budgetary impacts during the transition period as the Affordable Care Act takes effect and more patients switch from Medicaid or no insurance to private insurance. Hospitals undertaking mergers and expansions, including Backus' affiliation with Hartford Hospital and L+M's recent acquisition of The Westerly Hospital, will be in better shape to weather the changes ahead with the Affordable Care Act than others, she added.

However, both Stanley and L+M Chief Financial Officer Lou Inzana said that despite the appeals they and administrators at other hospitals made to legislators, most still misunderstand how the state budget will affect hospitals.

"The suggestion by the governor's office that we're coming into a windfall is folly," Stanley said, referring to the notion that hospitals will see new revenues because currently uninsured patients will get coverage under the Affordable Care Act. "We are bitterly disappointed in the lack of support from our local delegation."

Inzana said that the effects will begin to be felt Monday, when the new state budget takes effect. For the final quarter of its current budget, the hospital will lose $3 million in expected state funding, about 3 percent of its total annual revenue. That will all but wipe out the 3 percent operating margin L+M strives to maintain to keep itself financially healthy, he said.

Sharp, of the hospital association, noted that Medicaid payments to hospitals, a major source of revenue, will drop in the new state budget. Currently, hospitals receive about 70 cents in state reimbursements for each dollar of care they provide to Medicaid patients. In the new budget, it will be about 50 cents for each dollar of care provided, she said.